Peter Lynch:  Fund Manager and Investing Guru

Now retired, Lynch secured his reputation as one of the most successful fund managers in history while in charge of the Fidelity Magellan fund between 1977 and 1990. During the 13 years until his retirement in 1990, Magellan was the top-ranked general-equity mutual fund. A $10,000 investment in Magellan in 1977 would have grown to $288,000 by 1990. During this period Lynch achieved and average annual return of 29%.

When Lynch assumed the management of Magellan in 1977, the fund had $20 million in assets. By 1990, when he decided to take early retirement, its value had grown to $14 billion. During the 13 years that Lynch ran the fund, Magellan failed to outperform the S&P 500 stock index only twice. No fund manager in history has ever ran so large a fund, so successfully, for so long. What is truly exceptional is that Lynch was able to maintain such high returns even after their fund's assets had swelled.

Although it is very difficult to emulate Lynch's portfolio management style, Lynch insists that small investors can research stocks better than most professionals. This is because individual investors are often better positioned to spot profitable investments earlier.  Moreover, they are always free to act independently.  By contrast, many Wall Street professionals are constrained by committees, trustees and superiors.

Below are a few of Peter Lynch's investing principals:

Invest in What You Know
Lynch's key concept is that you can spot investment opportunities all around you by concentrating on what you already know and are familiar with. Lynch always invested in industries he understood, even if that business operated in a sector or industries that was forecasted to deliver lackluster performance. One such example was his investment in Chrysler in the 1980s. Chrysler was near bankruptcy at that time, but after seeing prototypes of its new minivan, Lynch made Chrysler one of Magellan's top holdings. Chrysler more than tripled in price in subsequent years.

Seize a Good Opportunity
Lynch was always on the hunt for above-average profit opportunities. Although he liked value stocks like Chrysler, he also invested in fast-growing up-and-comers such as Hanes Co.  Hanes' stock appreciated six-fold while Magellan held it.

Profitability, Price, and a Good Business Model
Lynch generally looked for three qualities in a good company:  profitability, price, and a good business model.

Check the key numbers.
1. If you are excited by a particular product or service, ensure that it accounts for a sufficient percentage of total company sales and that it makes a significant contribution to profits.
2. Favor companies with a strong cash position
3. Favor companies with a forward PE ratio well below their forecasted EPS growth rate
4. Avoid companies with high debt-to-equity ratios.
5. Avoid slow growers and cyclical stocks.

Do Not Hold Cash
You should always stay fully invested, otherwise you will likely miss out on market upswings.  Ignore the ups and downs of the market. Your profits and losses do not depend on the economy as a whole. Buy whenever you come across an attractive idea with a compelling story behind it.

Know When to Sell
Sell your bellwether holdings when their PEGs (calculated as PE dividend by a firm's projected earnings growth rate) reach around 1.2-1.4, or when a company's long-term growth rate starts to slow.

Sell fast growers when there appears to be no further scope for expansion, or when expansion starts to produce only disappointing sales and profits growth, or when their PEGs reach around 1.5-2.0.

Sell asset plays when they are taken over, or when assets that are sold off fetch lower-than-expected prices.

Who Cares What the Market is Doing When You're Pulling in $28,900 a Year in Dividends? With the safe, growing, high-yield picks that Editor Carla Pasternak recommends every month you don't have to worry whether or not the market has bottomed. You can sit back and collect annual dividend paychecks of $16,300, $19,900 or even $28,900! You can't go wrong looking into Carla's recommendations. A year from now, when you've collected as much as $28,900 from dividends alone you'll be glad you did. Take the first step and, read this report now. Seven "Yield Doubler" Stocks That Are Clobbering The Dow Just 12 trading days before the market hit its 6,500-point low this year, the "Yield Doublers" portfolio was born. That was almost 4 months ago. The Dow has rebounded +12% since then -- but our seven "Yield Doublers" have clobbered that figure by a factor of up to 9-to-1... delivering up to +144.2% gains to boot! Go here to see why you should add these "Yield Doublers" to your portfolio today.

We're Putting $50,000 on the Line in Our NEW Stock of the Month Portfolio We're SO confident in this strategy that we're putting our money where our mouth is... $50,000 worth of it in fact! That's how much we've put into a brokerage account to fund the real-money portfolio for StreetAuthority Stock of the Month. Amy Calistri just made her first purchase, and it's not too late for you to join in and follow along with everything she does. Don't be left on the sidelines, click here to learn more now. Two Infrastructure Stocks That Are Profiting From Massive Government Spending Since the stimulus package was signed into law on February 17th, these two infrastructure picks have moved up quickly. One's a worldwide construction company that's already gained +32% to date. The other makes critical copper, aluminum and fiber optic cables... and shot up +41% in a matter of just weeks. Both are headed higher. You’ll find their names in this special report.